Question

The capital budgeting manager of Conscientious Production Company (CPC) submitted the following report to the CFO:

CPC generally takes risk into consideration by adjusting its average required rate of return (r), which equals 9 percent, when evaluating projects with risks that are either lower or higher than average. A 5 percent adjustment is made for high-risk projects, and a 2 percent adjustment is made for low-risk projects. If these projects are independent, which one(s) should CPCpurchase?